Trump Plan to Tame State Medicaid Finance Schemes Sees Pushback

Hospitals, nursing homes, and physicians are lining up against a Trump administration plan to curb questionable state Medicaid financing arrangements, saying the changes could slash annual funding by up to $49 billion, hurt beneficiary access to care, and limit states’ ability to fund their cash-strapped programs.

Like other sweeping health-care directives from the Trump administration, the proposed Medicaid Fiscal Accountability Regulation will likely face a legal challenge from provider groups and statesthat could have to pay a larger share of program costs, said Cindy Mann, a partner at Manatt Health in Washington.

The proposed rule would give the Centers for Medicare & Medicaid Services vast new discretion to accept or reject state Medicaid funding arrangements, often based on “the totality of circumstances” or whether they impose an “undue burden” on the program. Both new standards, opponents say, introduce uncertainty and vagueness into the program funding process.

The proposal aims to increase program transparency and accountability by requiring more documentation, federal oversight, and clearer definitions surrounding how states generate their share of Medicaid spending, which the federal government must then match.

The proposal pays particular attention to two areas:

Growth in state supplemental payments to doctors, hospitals, and other medical providers, which help bolster low program reimbursement rates; and

Financing mechanisms used to generate state Medicaid payments—like health-care-related taxes on providers—that can return the tax revenue, and the federal matching dollars they generate, back to the providers that financed the state payments.

While both are legal, CMS Administrator Seema Verma told the National Association of Medicaid Directors in November the arrangements are often inconsistent with Medicaid payment principles and can “mask or circumvent the rules.”

The American Hospital Association in a recent fact sheet said parts of the proposal would violate the Medicaid statute, while other areas violate the Administrative Procedure Act, which governs federal rulemaking. One possible violation of the Medicaid statute is a provision that would allow the CMS to reject a funding arrangement based on a “reasonable expectation” that it’s impermissible.

The proposal also provides no analysis on how it would affect coverage or costs, said Mann, a former deputy administrator at the Centers for Medicare & Medicaid Services.

“I’ve never seen a regulation like this, which just kind of throws up their hands and says ‘We’re not going to really try and precisely regulate. We are going to shut something down when we think it crosses a line that we can’t quite define,’” she said.

Hospitals, Doctors Sound Alarm

The AHA called for the proposed rule to be withdrawn.

The powerful industry group estimates the proposal could reduce Medicaid funding by $37 billion to $49 billion a year, or 5.8% to 7.6% of total program spending. Hospitals could see Medicaid payments shrink by $23 billion to $31 billion annually. That represents a cut of nearly 13% to 17%.

The possible funding losses could throw state budgets into disarray, forcing them to either pay a larger share of Medicaid expenditures, cut program services, or reduce payments to providers.

Stacey Mazer, acting executive director of the National Association of State Budget Officers, said the group is “working hard to make sure its members are aware of the proposal” and are “individually assessing what the impact would be in their state.”

The California Medical Association believes it already knows.

“Because the proposed rule will exacerbate provider shortages, patient access to medical care, and state budget problems, and does not establish clear standards by which future state Medicaid funding will be reviewed, CMA is urging CMS to rescind the proposed rule,” the association said in a Jan. 16 position paper.

Role of Supplemental Payments

Because of Medicaid’s low reimbursement rates, states often provide supplemental payments beyond the base rates to ensure there are enough providers to maintain adequate beneficiary access.

These state supplemental payments—which garner matching funds from the federal government—have grown from 9.4% of total Medicaid payments in fiscal year 2010 to 17.5% in FY 2017. Because they are reported in aggregate rather than at the line-item level, it’s unclear to the CMS what the supplemental money went for.

States sometimes utilize local government funds or health-care-related taxes on providers to fund their supplemental payments.

The proposed rule would require that all supplemental payments be reauthorized by the CMS and the state every two or three years.

That process would require details about the purpose, intended effects of the payments, a plan to monitor the payments, and a description of how the payments are calculated and distributed.

States would also have to provide quarterly data on all providers receiving supplemental payments, what the money was for, and the amount. Watchdog agencies like the Government Accountability Office and the Department of Health and Human Services Office of Inspector General have called for more transparency in supplemental payments.

The proposal would limit supplemental payments to health-care providers to 50% of their Medicaid base payment rate. Providers in rural areas and in places with a shortage of health-care providers could get supplemental payments of up to 75% of their base rate under the proposal.

This would reduce supplemental payments to providers by $222 million in 21 states, the CMS estimated.

“We do believe that projection to be quite low,” said Erin O’Malley, senior of director of policy at America’s Essential Hospitals, which represents mainly urban safety net facilities that care for a high percentage of Medicaid patients.

She said the suggested payment cuts lack a valid rationale. “So we’ll be pushing back on that,” O’Malley said.

Impact on Nursing Homes

The supplemental payment proposal would devastate nursing home funding in Indiana, Utah, and Texas where payment programs would be difficult to bring into compliance with the new requirements for reasons unique to each state, said Mark Parkinson, executive director of the American Health Care Association. It represents about 14,000 nursing homes and assisted living facilities nationwide.

Indiana nursing homes get nearly 40% of their Medicaid funding from supplemental payments, while Utah facilities get 35%, according to the Medicaid Payment Advisory Commission. In Texas, roughly half of the state’s 1,200 nursing home facilities receive supplemental payments.

The proposed rule would also put new restrictions on health-care-related taxes on medical providers, which states use to finance their portion of Medicaid payments. The tax revenue is then used to draw down the federal Medicaid matching funds.

“And then that money is circulated back into the nursing homes,” Parkinson said. ”It’s a way to increase the total amount of Medicaid funding without the state general fund putting up the money.”

Last year, 45 states levied such taxes on nursing facilities. If the rule is finalized as proposed, provider taxes in about 25 states wouldn’t comply, Parkinson said. The proposal gives states three years to comply, but doing so would be “very challenging” for some states, Parkinson said.

The AHCA will suggest in its public comments due by Feb. 1, that the CMS allow some provider tax programs and supplemental payment programs in their current form to continue under the new rules. They could then be modified to link the federal matching funds to quality outcomes for patients, Parkinson said.

That would retain their vital funding streams and further a joint goal with CMS to improve quality, he said.